Thursday, July 5, 2012

Today's news was mixed, with the biggest disappointment coming from the ISM service sector report. Other releases, however, were generally positive. Overall, I don't think this provides any new insights into the economy's health, but there is very little if any support here for the view that the economy is once again slipping into a recession. It's just more of the same: an economy growing at a disappointingly slow pace.

The ISM service sector survey (top chart) came in below expectations, and definitely looks weak; it might support the case for another recession. However, the employment index (second chart) picked up a bit. With a plunge in new orders driving the decline in the overall index, this might be a case of Eurozone-induced anxiety rather than any fundamental deterioration in the economic fundamentals.

The ADP employment report was quite a bit stronger than expectations (176K vs 100K). As the chart above suggests, this points to a payroll report tomorrow that could be stronger than the 100K expected. That would definitely rule out a recession.

Weekly unemployment claims were on the low side of expectations, and there is no sign that the downtrend that began over three years ago has come to a halt or reversed. Nonseasonally adjusted claims (chart above) were down over 13% from year-ago levels, and the 52-week average of claims continues to decline. No sign here of any incipient recession. Moreover, the total number of people receiving unemployment insurance has dropped by 1 million (over 15%) over the past year, and that means that the incentive to find and accept jobs continues to rise.

The Challenger tally of announced corporate layoffs fell, and as the chart above shows, this index is quite low, showing no signs of any unrest in the corporate sector.